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March 6, 2002

How To Avoid Inadequate Background Checks

By Jim Leverette & Randy Neal

You’re aware, I’m sure, of the old adage of disputing the existence of stupid questions. Yet in the employment process not only are there stupid questions, but costly ones as well.

Having worked for many years as retained executive search consultants, we have conducted numerous reference checks and dealt with various issues related to background evaluations under the Fair Credit Reporting Act. This means that we ask a lot of questions and query many people. Most of us realize that federal regulations bar certain personal questions during the interview and reference process — age and marital status, for example. But over the years we have come to realize that the interview and referencing process is not an art, but rather a disciplined form of research bounded by safeguards and rules.

Congress enacted the Fair Credit Reporting Act in 1970 as a way to address complaints regarding credit denials. At the time, people were often unable to learn the reasoning behind a denial and many who examined the loan process discovered inaccuracies in their credit reports. The act also considers reference checks by search consultants and executive search firms to be an investigative consumer report. Accordingly, certain rules — and penalties — govern background checks. Thus executive search and staffing firms, hiring companies, and candidates must understand the implications not only of improper questioning, but of inadequate questioning.

This is not a trifling thing. In 1984, the Texas Court of Appeals ruled that a personnel consulting firm failed to verify or uncover factual information after a candidate deliberately misrepresented his academic background and held the firm legally and financially responsible for damages. The Arkansas state Supreme Court found, in Keck vs American Employment Agency Inc., that a personnel firm failed to investigate a client’s background and business activity. The firm, in addition, had not informed the candidate of these failures and their negligence in this regard allowed a client with no real place of business to kidnap and rape a candidate. Another case — Gutzan vs Altair Airlines and Romac and Associates, heard by a U.S. Circuit Court — found a search firm liable for damages caused by a candidate who lied about a mark on his military record, even though the damages occurred some time after the firm placed the candidate. On a lighter, yet still damaging note, we’ve all read flaps lately concerning false claims of degrees or military service that went undiscovered until some journalist, Internet scribe, or employee dug up the truth.

In other words, an executive search consultant must know what to ask and how to ask or properly pursue a specific line of questioning. A company working with an executive search firm must ascertain that the firm follows all requirements or they may find themselves liable as well.

Know the Code

The 1970 act restricts reference checks in three ways. First, it requires that the search firm disclose to the candidate their intention to check his or her records and references. Furthermore, the act states that search consultants using public records must notify the candidate if they turn up information that may damage his or her ability to land a job. The law considers this notification to be complete and up to date, so thorough research and strict adherence to procedures is an absolute necessity. Second, the act states that certain information — bankruptcy actions more than 10 years old, suits, paid tax liens, collection reports, convictions, or other information more than seven years old — may not be forwarded to a third party. Finally, the search firm must inform the candidate, in writing, that he or she may request a copy of the reference report.

Other requirements deal with the archiving of records, disclosure of names, and disputes arising from reference reports. Should a candidate question the accuracy of any results, the search firm must examine the data within “a reasonable period of time” and document the information in question, immediately deleting any inaccuracies.

Like we said, it’s serious stuff.

It behooves employers to understand the Fair Credit Reporting Act and how it applies to reference and background checks. If a company works through an executive search firm or a staffing firm, it’s important to gather, in writing, a statement of responsibilities concerning the reference and background verification. Many firms limit their inquiries in order to avoid the intricacies of the act — not an illegal practice, mind you, but a widespread reality. If, as a company engaging the services of a search firm, you assume too much, well, you may end up as an example in some other article on referencing.

The act is useful for candidates, of course. It allows them to challenge items from the past and clarify any mistakes. Candidates may use federal regulations to piece together details of their own credit history, and by addressing issues ahead of time, prevent inopportune or inaccurate revelations that may derail an interview.

Again, in the interview and referencing process, there are inappropriate questions, inadequate questions, and very costly questions. By studying the Fair Credit Reporting Act and other federal decisions, executive search consultants, recruiters, and hiring companies can avoid all three.

Jim Leverette is senior vice president and Randy Neal is managing director of The Broadmoor Group, a Dallas-based global executive search consultancy. You may contact them at